The Salt Lake City, Utah-based IT lifecycle management specialist cut its revenue prediction for the second quarter ended June 30, from between $50m and $53m to between $45m and $46m, which would represent an increase of between 12.5% and 15% compared to last year.
While that growth would be welcomed by many software executives, it is disappointing for Altiris, which grew revenue 68% last year, making it one of the fastest growing companies in the IT industry.
Altiris’ president and CEO, Steve Butterfield, said the disappointing performance was based on a number of factors, including competitive pressures, slow growth from acquired business, and a cautious attitude among potential customers, the last of which particularly hit its revenue from HP.
Preliminary data indicates that we have several major transactions in the HP pipeline that did not close in the quarter, said Butterfield. We believe the delay in closing the business is the result of an overall market climate in which customers are more cautiously evaluating infrastructure purchases.
Butterfield added that the deals do not appear to have been lost to other vendors, but revealed that revenue generated for Altiris by HP is expected to be hit by a change in the IT giant’s sales compensation plan that will see its sales force receive a bonus for selling Altiris product, but not quarter credit.
This is a cause for concern, said Butterfield of the change, which will take effect from November. But we still believe, and HP does as well, that there is room for Altiris solutions within HP.
We do not believe that our relationship with HP is going away, he added. However… we believe it is realistic for us to plan for the HP revenue contribution to decline over time. HP was responsible for 20% of Altiris’ revenue in the second quarter, compared to 31% in the prior quarter.
Dell Corp’s share of Altiris revenue rose from 18% in the first quarter to 28% in the second, and Altiris has upped its expectations for Dell-derived revenue from between 20% and 25% to between 25% and 30% going forward.
Butterfield insisted that nothing has changed in its relationship with HP, but the competitive landscape appears to be altering for Altiris as larger systems management competitors have moved into its market.
HP acquired change and configuration management vendor Novadigm Inc in February 2004, while Computer Associates Inc purchased Miramar Inc in March 2004, and BMC Software Inc picked up Marimba Inc in April 2004. Altiris’ vice president and CFO, Steve Erickson, admitted increased competition and aggressive pricing is also having an impact on the company’s business.
Specifically, we’re losing business with our competition when they have an enterprise agreement with a large enterprise company and the customer does not understand the added value proposition of buying Altiris, he said.
As if all that was not enough, Altiris is also having some issues related to revenue-generation from its own acquisitions, specifically the vulnerability management technologies it acquired with Pedestal Software Inc for $65m in March.
Finally, in the second quarter we had softer-than-expected performance from new product lines, including Pedestal, said Butterfield. While we still believe in Pedestal’s potential and strategic fit within the Altiris product line, we now believe the sales cycle will take longer than we had originally estimated.
The combined result of all these issues led the company to state that it is now looking at revenue growth of between 10% and 15% in full-year 2005, and is considering how to respond.
This means we need to align our operational model with our revised outlook and re-evaluate our go to market strategies to best capitalize on our available resources, said Butterfield. We will take quick and decisive action. The company would not confirm job losses at this stage, but will reveal more when it announces its audited results for the second quarter in early August.
Altiris is predicting pro forma earnings per share of $0.06 or $0.07 based on its new revenue estimates, not including stock based compensation or the amortization of intangible assets related to previous acquisitions and its recent patent litigation settlement with Symantec Corp, which saw the security giant hand over $10m.
